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Sean writes:
‘Around the middle of this year you gave us your thoughts on where you thought the SPI was headed. You correctly thought a pull back was in the making and after retracing to around 4300-4800 area we would be off to the racers again to the up side.
However we have fallen below the lower end of that range to where we are currently around 3800 . Does the pull back to this area negate your EW count for wave 4 and subsequent wave 5 projection’
Sean a good question, the answer for which may be of interest to many other TTN readers.
I would like to make a number of points and then try and suggest where it may head to from here.
These have been extraordinary times - to put it mildly – markets have been moving at a break neck speed. When this happens one has to regularly test ones view and modify as need be, according to each new day or week of data. Even though I am 100% in cash, I test my view every day. So a view of today or a week ago can be quickly out of date.
In such market circumstances I try to avoid projecting out too far and the further out I project the smaller the probability I assign to that projection.
I am an avid proponent of Elliott and one of the smart things about Elliott is it does change counts as more significant data comes to hand.
As markets move in a trend like pattern – as opposed to range trading – markets find shelves – as in cliff shelves – upon which to rest. These are commonly called areas of resistance and support. They are pauses before the next move higher or lower. And in the last few months they have been a pause before the next move lower.
I also use Fibonacci retracements and below is one such chart:
click to enlarge
One of the characteristics of these retracements is that if they fail at one level the market is likely to move to and test the next one. Thus in the above example the SPI has fallen through the 61.8% - 4300 – and it is now in my view likely to test 78.6% 3652. And if I recall correctly it has already been very close to that intra night a week or so ago.
If that was to fail then it could test 100% which is about 2800.
I say ‘about’ as I am not a subscriber to the view many analysts take that you can be precise with such matters. I am happy to be within cooee by say 50 points or so.
I am not saying the market will go to 2800 but I have it in the back of my mind and will review it in more detail if and when it reaches 3600.
What we are seeing now is – in my view as I do not want to be dogmatic – is a dead cat bounce:
click to enlarge
How low can it go? Without as much as saying so, but some friends have alluded to the prospect that I am inciting the market and adding to the gloom. Apart from the fact this is both extremely complimentary and ludicrous at the same time. I, like the market, want to pause and contemplate at each shelf.
Enjoy the ride
Tom Scollon
Chief Analyst
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